1. Suppose that you can earn $16/hour before taxes and can work up to (but not more than) 80 hours per week. You have no unearned income. Consider two marginal tax rates on earnings, 10% and 20%.
a. On the same diagram, draw the two weekly consumption-leisure budget constraints reflecting the two different tax rates.
b. Draw a new diagram that shows the same budget constraint as in part a, but with a set of representative indifference curves such that the income effect of moving from a 10% tax rate to a 20% tax rate outweighs the substitution effect.
c. Draw a new diagram that shows the same budget constraint as in part a, but with a set of representative indifference curves such that the substitution effect of moving from a 10% tax rate to a 20% tax rate outweighs the income effect.

2. Suppose that for every hour you work you can earn $10 before taxes. You have no unearned income. Furthermore, suppose that you can work up to 16 hours per day, 365 days per year (the other 8 hours a day are reserved for sleep). Draw your annual budget constraint reflecting the consumption-leisure tradeoff under the following tax schemes:
a. A 20% tax on all earnings.
b. You pay 0% tax on the first $10,000 earned, and a tax of 25% on all earnings above $10,000.
c. You pay 10% tax on the first $5,000 earned, 20% on earnings between $5,000 and $10,000, and 30% on all earnings above $10,000.

3. Currently, Alaska has no state income tax. One option being considered by the governor, Bill Walker, is to close the state budget deficit by instituting a 7.5% proportional tax on labor income. There are 283,000 households in Alaska, and current
average household labor income is $61,000.
a. Calculate the deadweight loss of this tax, assuming an uncompensated labor supply elasticity of 0.25.
b. Is your estimate of the deadweight loss in part a. an accurate measure? Why or why not? If you believe it to be inaccurate, is it an underestimate or an overestimate of the true deadweight loss? Be sure to buttress your answers with economic reasoning.
c. What is the average deadweight loss?
d. What is the marginal deadweight loss?

1. Suppose that you can earn $16/hour before taxes and can work up...